TCS Hit 52-Week Low This Week; Outperformed Nifty IT Index On A YTD Basis: Should You Buy It?

Post the earnings and ahead of its turning ex-date in respect of the first interim dividend for the Fy23, the stock of IT behemoth hit a 52-week low price of Rs. 2953 per share on July 15, 2022. The stock has still outperformed the Nifty IT index which has slumped by a greater degree on a YTD basis of 31.57%. Here we take a view on the stock as despite the margin pressure, this Tata Group stock trading close to its 52-week low makes for a good bet or net.

Indian IT industry overview

Currently the inflationary woes world over is propelling, interest rate hike and with it India is seeing FII outflow as well as the recessionary pressure that is building up, is causing a sense that there shall be less of demand from abroad for IT related services. So, this is what is one factor that is weighing on Indian IT industry.

TCS Q1fy23 results

Revenue at $6,780 million, +10.2% YoY

Constant Currency revenue growth: +15.5% YoY

Operating Margin at 23.1%; contraction of 2.4% YoY

Net Income at $1,218 million | Net Margin at 18%

Net Cash from Operations at $1,388 million ie 114.1% of Net Income

Net headcount addition of 14,136 |Workforce strength: 606,331

Diverse and inclusive workplace: Women in the workforce: 35.5% | 153 Nationalities

Building a G&T workforce: 12 million learning hours clocked | 1.7 million competencies acquired

LTM IT Services attrition rate at 19.7%

Dividend per share: Rs. 8.00 | Record date 16/07/2022 | Payment date: 03/08/2022

Management view in the conference call

In the conference call, the company's management said, "In conversations with clients, we see continuing investments in technology. Some clients, particularly in Europe have expressed concerns about the macroeconomic fallout of the ongoing conflict there. But the predominant sense is that technology spending will be resilient. That said, given the macro level uncertainties, we remain very watchful".

View on the stock and the highest Target price

ICICI Securities is the most bullish on the stock and has given the stock of TCS a 'Buy' given the reasons as specified below:

Higher customer stickiness expected which shall result in more market share gain.

Increase in outsourcing in Europe, vendor consolidation and deal pipeline leading to revenue CAGR of 12.2% over FY22-24E "We expect margins to be under pressure till FY24, resulting in margin contraction of 30 bps in FY22-24E Double-digit return ratios, strong cash generation and healthy payout", adds the brokerage.